ANALYSIS OF SECTION 80JJA
A. Applicability of Section 80JJA
1. This section applicable to all assesses i.e. corporate and non-corporate assessee. It is also applicable to non-resident carrying on business in India.
2. This section applies to any assessee to whom section 44AB applies i.e. applicable to a person who is required to get his account audited by an accountant.
3. Deduction is allowed where here the gross total income of an assessee, includes any profits and gains derived from business. Therefore, the deduction is not available to an assessee carrying on any profession.
B. Manner of Deduction under Section 80JJA
1. Deduction = 30% of additional employee cost incurred in the course of such business in the previous year
Deduction shall be allowed for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided.
Example: If additional employee cost incurred during the previous year 2019-20 is Rs. 1,00,000 than deduction under section 80JJAA shall be as under-
- Assessment Year: 2020-21: Rs. 30,000
- Assessment Year: 2021-22: Rs. 30,000
- Assessment Year: 2022-23: Rs. 30,000
2. In case of New Business, deduction is available in the previous year in which the business has been established and employment is provided and in every subsequent previous year in which employment has been provided.
3. In case of Existing Business, deduction is available in the previous year in which the employment has been provided.
C. Additional Employee Cost
1. “Additional employee cost” means the total emoluments paid or payable to additional employees employed during the previous year.
In the case of an existing business, the additional employee cost shall be nil if there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year.
Example:
- If on 31/03/2019, there were 50 employees and during the previous year 2019-20, 10 employees were left/removed out of the 50 employees and 10 new employees were joined, than there will no deduction under this section.
- If on 31/03/2019, there were 50 employees and during the previous year 2019-20, 10 employees were left/removed out of the 50 employees and 12 new employees were joined, than the emolument paid to 2 new employees shall be taken as additional employee cost.
- If on 31/03/2019, there were 50 employees and during the previous year 2019-20, 10 employees were left/removed out of the 50 employees and 8 new employees were joined, than there will no deduction under this section.
3. “Additional employee cost” in case of existing business shall not include emoluments paid otherwise than by way of banking channels.
4. In case of first year of operation of business, emoluments paid to employees employed during the previous year shall be deemed to be the additional employee cost. It seems that in first year, emoluments can be paid by cash i.e. other than through banking channel.
D. Additional Employee does not include-
1. An employee whose total emoluments are more than Rs. 25,000/- per month.
2. An employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; or
3. An employee who does not participate in the recognised provident fund:
4. An employee employed for a period of less than 240 days during the previous year; or
Additional Points-
(a) In the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather products, additional employee does not include an employee employed for a period of less than 150 days during the previous year.
(b) Where an employee is employed during the previous year for a period of less than 240 days or 150 days, as the case may be, but is employed for a period of 240 days or 150 days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.
Example: XYZ Limited employed 30 new employees on 16th January 2020. Then, as per the condition mentioned above, they will not be considered as additional employees and deduction under section 80JJAA cannot be claimed in the previous year 2019-20. However, as per additional point (b), if such employees were employed for more than 240 days in the financial year 2020-21, than in that case, for the previous year 2020-21, such employees can be considered as additional employees and the deduction can be claimed from the assessment year 2021-22.
E. Emoluments
1. “Emoluments” means any sum paid or payable to an employee. Therefor non-monetary perquisites cannot be shall not be included in the emoluments.
2. Further, if an allowance has is paid to an employee and the allowance is partly / wholly exempt under the Income Tax Act, 1961, than the gross allowance shall be considered in emoluments. For Example: HRA paid is Rs. 5,000/- and Rs. 2,500 is exempt, than Rs. 5,000 shall be considered in emoluments.
3. Emoluments does not include-
(a) Any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law; and
(b) Any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.
It’s needless to mention that the deduction under section 80JJAA is in addition to the deduction of various emoluments paid by the employer under the head “Business and Profession”. There is a big gap between the theoretical discussion of this section and practical application of the same, especially when the volume of client is significant. Many practical level issues might arise. Feel free to discuss the same.
Bare Act provisions of Section 80JJAA
Deduction in respect of employment of new employees.
Section 80JJAA (1) Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year, for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided.
(2) No deduction under sub-section (1) shall be allowed,—
(a) If the business is formed by splitting up, or the reconstruction, of an existing business:
(b) Provided that nothing contained in this clause shall apply in respect of a business which is formed as a result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances and within the period specified in section 33B;
(c) If the business is acquired by the assessee by way of transfer from any other person or as a result of any business re-organisation;
(d) Unless the assessee furnishes alongwith the return of income the report of the accountant, as defined in the Explanationto section 288 giving such particulars in the report as may be prescribed.
Explanation.—For the purposes of this section,—
(i) “Additional employee cost” means the total emoluments paid or payable to additional employees employed during the previous year.
Provided that in the case of an existing business, the additional employee cost shall be nil, if—
(a) There is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year;
(b) Emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.
Provided further that in the first year of a new business, emoluments paid or payable to employees employed during that previous year shall be deemed to be the additional employee cost.
(ii) “Additional employee” means an employee who has been employed during the previous year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year, but does not include—
(a) An employee whose total emoluments are more than twenty-five thousand rupees per month; or
(b) An employee for whom the entire contribution is paid by the Government under the Employees’ Pension Scheme notified in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or
(c) An employee employed for a period of less than 240 during the previous year; or
(d) An employee who does not participate in the recognised provident fund:
Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather products, the provisions of sub-clause (c) shall have effect as if for the words “240”, the words “150” had been substituted:
Provided further that where an employee is employed during the previous year for a period of less than 240 days or 190 days, as the case may be, but is employed for a period of 240 days or 150 days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.
(iii) “Emoluments” means any sum paid or payable to an employee in lieu of his employment by whatever name called, but does not include—
(a) Any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law for the time being in force; and
(b) Any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.
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